The challenge of making cities smart holds opportunities for businesses.
The challenge of making cities smart holds opportunities for businesses.
( Source: Public Domain / Unsplash)

URBAN DEVELOPMENT Smart cities offer strategic potential for companies in all sectors

Editor: Florian Richert

More and more German cities and municipalities are looking to take advantage of digitization opportunities and develop into 'smart cities.' The coronavirus pandemic has further boosted this trend. Companies are increasingly recognizing the opportunities resulting from this development.

Companies are increasingly recognizing the opportunities resulting from developing smart cities. Businesses with 500+ employees are acting as pioneers, shows a scientific study commissioned by the law firm Noerr, for which 120 decision-makers in companies and city administrations were interviewed.

Smart cities as a growth market

Smart cities play an essential role, either today or in the future, for almost 80% of the companies surveyed. 35% of those interviewed state that they have already been working on smart city solutions. Of the 65% currently not doing so, more than two thirds (68%) expect this to change in the next five years.

"This study is the first of its kind to examine the extent to which smart city concepts already have economic significance for companies today, and what technical, economic, and legal obstacles need to be overcome to further develop such concepts," says Holger Schmitz, head of Noerr's Regulatory & Governmental Affairs practice. "We are very pleased that this empirical study now provides an important contribution to systematically developing innovative business models on a scientific basis."
95% of those interviewed consider connecting the areas of energy, mobility, urban district development, and administration an essential requirement for a smart city. A majority of the companies surveyed see digitalization as an opportunity to create connected, sustainable, and resource-saving business models through mobile data exchange.

No uniform legal framework

Beyond questions relating to data protection and data sovereignty, most survey participants considered the legal aspects of being a significant challenge in developing smart city concepts. Issues include the storage of electricity or the provision of digital services of public interest. Other legal challenges identified by respondents are public tenders and award procedures.
"It is true that existing legislation takes little account of innovative business models which, due to their networked character, tend to touch on several areas of law," says Florian Koch, Professor of Real Estate Management, Urban Development, and Smart Cities at Berlin University of Applied Sciences. Professor Koch conducted the study (in German only) on behalf of Noerr.

Large companies are pioneers

Another result of the study is that companies with more than 500 employees primarily drive smart city concepts. As they view the issue as strategically relevant, many large companies have already adapted their management structures, established subsidiaries, and acquired know-how or technological solutions by taking over start-ups or cooperating with know-how leaders. In contrast, smaller companies, which lack the required capacities or expect reduced sales, rely almost exclusively on collaborating with smart city service providers. Irrespective of the company's size, there is broad consensus among study participants that the aspects of modernization, optimization of traffic flows, increasing energy efficiency, and an overall urban development concept are characteristic of a smart city.

More than 80% of those interviewed see great potential in developing smart cities for companies and local authorities in terms of efficiency, convenience, information, communication, and sustainability, security (58%), and cost of living (35%) being mentioned less frequently. The study shows that energy, mobility, and infrastructure are the sectors that are highly relevant or relevant (>80%) for smart cities. The study participants also see the potential for e-government (60%) and real estate (50%).

The opportunities that smart cities offer companies lie in a horizontal connection of vertical fields of action, for example, by linking energy, mobility, and urban district development. "Such connections are crucial for cities to develop into smart cities," says Holger Schmitz.

"Only a holistic approach to combining the individual visions and objectives will make it possible to rethink the system of a city in digital terms, to significantly improve the quality of life of its inhabitants and save resources. "In the end, a smart city is more than the sum of its individual parts," says Holger Schmitz.